Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

After 2000, productivity growth slumped to around 1 per cent a year, the weakest on record, creating an unfavourable economic environment for pay increases.

Mark Blinch/The Globe and Mail

David Williams, DPhil, is vice-president of policy at the Business Council of British Columbia. Jock Finlayson is the council’s senior policy adviser.

A populist narrative making the rounds is that policy makers can ignore productivity growth because the link between average pay and productivity has broken down. According to this view, workers are receiving a shrinking share of the economic pie, while overall income inequality is rising. However, a careful look at the data for Canada shows these assertions are incorrect.

A new study by one of us (David Williams) finds the slowdown in Canadians’ real pay growth since 2000 is commensurate with the slowdown in productivity growth. Had Canada’s productivity growth rate after 2000 matched the average for the countries that belong to the Organization for Economic Co-operation and Development (OECD), the average worker’s pay would be $2,900 higher in 2019. Had Canada’s post-2000 productivity growth rate matched its own performance between 1961 and 2000, average pay would be $13,550 higher.

Story continues below advertisement

Governments need to right fiscal ships with windfall revenue from strong economic recovery

The future of the organization, not the office, requires a strategic rethink

Productivity and Pay in Canada: Growing Together, Only Slower than Ever appears in the latest edition of International Productivity Monitor, published by the Centre for the Study of Living Standards. The article examines the relationship between growth in real output per hour worked (labour productivity) and real total labour compensation per hour worked (pay) over six business cycles, from 1961 to 2019. Compensation includes both money and benefits paid by employers, as well as the labour income of self-employed workers, across all industries.

Over the long run (1961 to 2019), productivity and pay are closely aligned in Canada, with both rising by 1.5 per cent to 1.7 per cent per year (see table). After 2000, productivity growth slumped to around 1 per cent a year, the weakest on record, creating an unfavourable economic environment for pay increases.

Productivity and pay growth

over Canadian business cycles

Compound annual growth rate,

per cent per annum

LONG

RUN

1961–19

BUSINESS

CYCLE

2000–08

BUSINESS

CYCLE

2008–19

MEASURE

Labour

productivity

Real output per

hour worked

1.7

0.9

1.0

Real output per

hour worked*

1.5

1.1

0.7

*ex-depreciation and output-based taxes

Real total labour

compensation

per hour worked

Hourly compensation/

output prices

1.5

0.7

1.1

Hourly compensation/

consumer prices

1.7

1.9

1.1

SOURCE: DAVID WILLIAMS, BUSINESS COUNCIL

OF BRITISH COLUMBIA

Productivity and pay growth

over Canadian business cycles

Compound annual growth rate, per cent per annum

LONG

RUN

1961–2019

BUSINESS

CYCLE

2000–2008

BUSINESS

CYCLE

2008–2019

MEASURE

Labour

productivity

Real output per

hour worked

1.7

0.9

1.0

Real output per

hour worked*

1.5

1.1

0.7

*ex-depreciation and output-based taxes

Real total labour

compensation

per hour worked

Hourly compensation/

output prices

1.5

0.7

1.1

Hourly compensation/

consumer prices

1.7

1.9

1.1

SOURCE: DAVID WILLIAMS, BUSINESS COUNCIL

OF BRITISH COLUMBIA

Productivity and pay growth over Canadian business cycles

Compound annual growth rate, per cent per annum

LONG RUN

1961–2019

BUSINESS CYCLE

2000–2008

BUSINESS CYCLE

2008–2019

MEASURE

Labour productivity

Real output per hour worked

Real output per hour worked*

1.7

0.9

1.0

1.5

1.1

0.7

*ex-depreciation and output-based taxes

Real total labour compensation

per hour worked

Hourly compensation/

output prices

1.5

0.7

1.1

Hourly compensation/

consumer prices

1.7

1.9

1.1

SOURCE: DAVID WILLIAMS, BUSINESS COUNCIL OF BRITISH COLUMBIA

Initially, during the 2000-08 business cycle, Canada benefited from favourable – but temporary – relative price movements that ameliorated the effects of meagre productivity gains on pay growth. As China opened to the world, Canada’s resource-based export economy gained from surging commodity prices, while cheap import prices boosted consumers’ purchasing power. Real pay growth, measured in terms of consumer prices, improved.

However, over the latest business cycle (2008-2019), the chickens came home to roost. There were no further fortuitous terms of trade shifts for Canada. Whether measured in terms of output prices or consumer prices, real pay growth slumped to approximately equal productivity growth.

Many advanced economies saw productivity decelerate after 2000. Nonetheless, Canada’s productivity growth performance ranked 21st out of 23 OECD countries over 1970-2000 and 25th out of 36 developed countries over 2000-19. By 2019, on a purchasing-power-parity basis, real output per hour worked in Canada was 27 per cent lower than in the United States, 21 per cent to 22 per cent lower than in France and Germany, and 10 per cent lower than in the United Kingdom.

Academic studies indicate that the rate of innovation adoption slowed among Canadian firms after 2000. The most likely culprits are regulatory impediments that dampen competition and the reallocation of labour and capital to best use. Since 2000, in terms of output per hour of labour input, the typical Canadian firm has fallen further behind the country’s leading companies, while Canada’s most productive businesses themselves have lost ground to the best performing global firms.

The good news is that there is ample scope for “catch up”. Canada can raise productivity – and therefore real pay and living standards – through speedier adoption of best practices and technologies already deployed by leading countries and firms. Curing the productivity-related maladies that weigh on our economy will require governments to review and retool structural policy settings that impinge on product market competition and innovation diffusion, business growth and creative destruction, resource reallocation, and private-sector investment in capital, skills and scale.

Story continues below advertisement

Productivity matters. Canadians should be concerned about serially low productivity growth because it points to feeble increases in real worker pay. Canada urgently needs a policy framework that fosters conditions for faster productivity growth.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies